Consider the following information: Rate of Return if State Occurs State of Economy Probability of State of Economy Stock A Stock...

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Finance

Consider the following information:

Rate of Return if State Occurs
State of Economy Probability of
State of Economy Stock A Stock B Stock C
Boom 0.64 0.15 0.05 0.23
Bust 0.36 0.07 0.07 -0.09

Requirement 1:
What is the expected return on an equally weighted portfolio ofthese three stocks? (Do not round your intermediatecalculations.)
(Click to select)9.77%12.27%21.80%24.57%4.04%

Requirement 2:
What is the variance of a portfolio invested 20 percent each inA and B and 60 percent in C? (Do not round yourintermediate calculations.)

Answer & Explanation Solved by verified expert

4.4 Ratings (932 Votes)

1 Stock A Scenario Probability Return rate of return probability Boom 064 15 96 Bust 034 7 238 Expected return sum of weighted return 1198 Share B Scenario Probability Return rate of return probability Boom 064 5 32 Bust 034 7 238 Expected return sum of weighted return 558 Share C Scenario Probability Return rate of return probability Boom 064 23 1472 Bust 034 9 306 Expected return sum of weighted return 1166 Expected return Wt Stock AReturn Stock AWt Share BReturn Share BWt Share See Answer

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Transcribed Image Text

Consider the following information: Rate of Return if State OccursState of EconomyProbability ofState of EconomyStock AStock BStock CBoom0.640.150.050.23Bust0.360.070.07-0.09 Requirement 1:What is the expected return on an equally weighted portfolio ofthese three stocks? (Do not round your intermediatecalculations.)(Click to select)9.77%12.27%21.80%24.57%4.04% Requirement 2:What is the variance of a portfolio invested 20 percent each inA and B and 60 percent in C? (Do not round yourintermediate calculations.)

		Rate of Return if State Occurs
State of Economy	Probability of State of Economy	Stock A	Stock B	Stock C
Boom	0.64	0.15	0.05	0.23
Bust	0.36	0.07	0.07	-0.09